Alleghany Corp (Y)

To continue the boring pattern of featuring companies with great track records being offered by Mr. Market at a discount, here is Alleghany Corp (Y), an insurance company/conglomerate.  This currently looks like an insurance company but acts more like a conglomerate.

This is one of those companies where the annual reports are very well written and is worth your time to read every year.  These are no-nonsense people, anti-fad, anti-trend etc...  Very, very conservative and primarily seeks to preserve capital rather than swing for the fences.

Here is a graph from their 2010 annual report:

Book value per share (BPS) at year-end 2010 was $331.81, +10.3% on the year.  Over the past five years, BPS grew +8.9%/year versus +2.3%/year for the S&P 500 index, and the ten year return was +8.7%/year versus +1.6%/year for the index.

That's a pretty good return, again, in a flat market and what is considered a pretty horrible insurance market (soft prices, many large, unprecendented disasters).   It is stunning how well they have done given what has happened in the past decade.  BPS has barely budged in the face of a collapsing stock market in 2000-2002 (when the stock market went down 50%), the various insurance disasters and the financial crisis since then.  I have been reading their annual reports for a few years and they are very conservative and hate to lose money; they would rather sit on cash and earn nothing than do something stupid.  These are the kind of people you want to invest with.

Y, unlike most other insurance companies, but like MKL and BRK invests much more in equities.  Their equity portfolio return in 2010 was +17.1% versus +15.1% for the S&P 500 index and +6.2%/year and +2.3%/year respectively for the past five years.  They are very good equity market investors.

This is a really old company and it is fun to go to their website and go through the history of the company; it started in 1929 in real estate development and ownership of many railroad companies and it has morphed over the years.

Alleghany Timeline

For those interested in annual reports, read those too.  They are fantastic (but I know that 9 out of 10 people you tell to read annual reports won't read them, but that's OK.  It is a hassle if you don't like that sort of thing), and are worth reading even if you have no interest in investing in Y.  (I own some but not a large position).

Valuation

Anyway, maybe I will dig into this idea a bit more in another post, but for now let's just look at a quick valuation of this thing.  As with other insurance companies, Y does market their positions to market so book value is a pretty good indication of what this business is worth.

As of the end of the second quarter of 2011, BPS was $340.97/share, up +4.8% year to date.  However, the S&P 500 index has declined -12.5% since the end of June and Y owns $1.6 billion or so in equities.  So assuming the stocks went down a like amount, BPS adjusting for this would come to $319/share or so.  Y is now trading at $285/share, 89% of this value, or at an 11% discount.

Given the history of Y's returns combined with their conservatism, this seems very attractive.  Y also has excess liquidity that they can deploy in acquisitions if an opportunity arises.  They have been very, very picky, so they are underinvested.  If all hell breaks loose, they have the cash to take advantage of that. 

Why a 10% discount is so attractive
By the way, I was going to make this another post altogether, but one reason why I think these companies trading at book or below book value is so attractive is because they have a history of significantly outperforming the major averages and you can get them without a premium, or even in some cases a discount.

Think about mutual funds for a second.  Mutual funds typical underperform the market AND charge you a fee of 1.00%-1.50% of assets whether they do well or not.

Think about that for a moment.  They underperform and then they charge you for it.  What is this 1.00-1.50% expense worth?  If you capitalize it at 10%, that's worth 10-15% of assets.  That means that when you buy a mutual fund (at net asset value per share), you are actually paying a 10-15% *premium* to net asset values.

It gets worse.  If you want to capitalize that cost at 5% (since interest rates are low), that 1.00%-1.50% expense is worth 20%-30% of book value.  That means, again, that if you buy a mutual fund at the closing price, you are actually paying a 20%-30% *premium* to net assets for something that is most likely going to UNDERPERFORM the index! 

This makes no sense at all. 

Even if you buy an index fund for a 0.40% expense ratio, that is still costing you a 4% or 8% premium.

And these days, you get a lot of these wonderful businesses at book value or less.  Totally, mindbogglingly insane.

Closed-End Fund Discounts
This leads to the other issue of closed end funds and their discounts.  Closed end funds, in most cases *should* trade at a discount for the above reason.  The expense ratio will automatically set back any investor, and I am not aware of any closed end fund that outperforms their benchmarks for any significant period of time. 

At least with closed end funds, you have the chance to invest at a discount, though (although I wouldn't recommend most closed end funds except in certain situations where there is no alternative investment vehicle).  With mutual funds, you have no choice. You have to buy and sell the shares at net asset value per share, so you are forced to pay the above, capitalized premium!

Industry Concentration
I have mentioned great businesses for cheap, but keep in mind that many of these are in the same industry.  BRK, L, MKL and Y are all insurance companies or have big exposure to insurance.  Even though concentrated portfolios is a good idea, I don't know that anyone would want to have too much of their assets exposed to the insurance business.   That would not be prudent, even though the names I mention do underwrite conservatively (except L, the owner of CNA, which seems more like a conventional insurer than the others)

It's just something to keep in mind.

Goodbye Steve Jobs

Apple Stock Price Since 1984

Apple's stock was IPO'ed on December 12, 1980 at $22/share.  On a split-adjusted basis, that's $2.75/share.  Apple closed yesterday at around $378/share for an annualized return of +17.8%/year.

Pretty incredible given the long period that Apple went nowhere and did nothing (after they fired Jobs until he came back).

The above chart shows a dark rectangle as the black hole period of Apple when Steven Jobs was not there; he was fired in May 1985 and came back as interim CEO in September of 1997.   During those dark years, APPL returned 7%/year or so.

So to be fair to Jobs, let's look at his return only when he was there.

The stock IPO was at $2.75 in December 1980 and Jobs was fired in May 1985 when the stock price was $2.52/share for a return of -2%/year for those 4.4 years.  And then he came back in September 1997 when the stock price was at $5.42.  Since then to yesterday, the stock returned +35%/year.

Combining those two periods, you get a Jobs-tenure stock price performance of +27%/year.  Amazing.

(This is an investment blog so I am focusing on the stock price, but this is of course not Job's biggest contribution to the world at all!)

We lost a great one last night.

Are Stocks Expensive Now?

I couldn't find a list of the nifty fifty stocks of the early 70's and their p/e ratios to illustrate the difference between then and now, but I did find some lists with p/e ratios of some popular stocks back in 1972.

I found this on the internet and just cut and pasted it (sorry for the different font size; I'm still working on it):

Compare this to the p/e ratios in my recent "Crash?" post.  Of course, it's not fair to compare these high p/e ratio stocks in 1972 to the Dow 30 stocks now; the more fair comparison would be the Dow 30 now and the Dow 30 stock p/e's back then.  But I couldn't find a list handy so this will have to do.

You will notice that a lot of these names were the hot stocks of the day back then and many are large blue chips.   Sears, for example, was the dominant retailer back then as Walmart is now.  And Sears back then was trading at 30.8x p/e versus Walmart's 11x p/e today (Walmart *was* at 30-40x p/e back in the late 90s so the 1972/1999 analogy was a good one).

Anyway, people do like to say that we are headed towards a 1970s-like flat/bear market, or like the post 1989 Japan stock market.

This table sort of illustrates the difference between then and now.  It would have been fair to say in 1999/2000 that we were headed for years of flatness or an outright bear due to the high valuations, not too dissimilar to the above.

But today, I just don't see these sorts of valuations today even in the popular stocks.  (There are exceptions, of course, like Chipotle Mexican Grill which is trading at 40-50x p/e).

If the key to successful investing is "pricing" the market instead of "timing" the market, then there shouldn't be too much to worry about.   (Maybe I will post about the subtle but important difference between "pricing" and "timing" which people sometimes seem to get confused about).

VIX: The Fear Index

We all know that we have to be greedy when others are fearful and fearful when others are greedy.  Well, here's an interesting chart:

The VIX index: 1990 - Now

I don't intend to make market calls, bottoms and things like that.  That's really not my thing at all. But I will mention things when I see something interesting.  The VIX index, an implied volatility index of stock index options for the S&P 500 index is usually pretty good at calling market bottoms.   This fear guage, when it spikes up above 30% usually signals a market bottom.  During the worst of the 2008 crash, post-Lehman, this spiked up to around 80%.   This recently popped up to above 40% and now is around 39% or so.

It is usually not a great idea to be short the market in that situation, and also it is usually a good time to buy, at least for the short term.


The VIX: The Last Five Years

Here is a closer look at it, just focusing on the last five years.

I know, I know.  I keep saying I won't talk about Buffett, then talk about Buffett.  Then I say I don't predict the stock market, and here I am trying to call a bottom.

And yes, I don't do charts.  But this is a chart.  I know.

The VIX is one of those indicators that have proven to be very valuable over the years, so I thought I'd mention it.

Between this fear guage showing extreme fear and Greenblatt's comment the other day that the market is priced cheaply, in the 95% percentile of cheapness, and the fact that Warren Buffett is trying to buy his stock at 1.1x book and a few other indicators seem to point to pretty decent stock market returns going forward.

Be warned, however, that even with the VIX level high, the market can still go much lower!  If you bought stocks when the VIX spiked up above 40% back in 2008, you would still have had to sit through some scary down days. 

These are just some encouraging signs, not some sure-thing signal that says to buy stock on margin and get rich quick.

Plus I have to admit that I am still experimenting with this blog and am trying to get used to putting charts and tables into the blog (you may have noticed that I have had trouble creating tables by hand here).

Loews Corp

I might as well write about this old, classic sum-of-the-parts investment too.  It's well known in the value investing community, so nothing new here either except a fresh update.

For those who this is new to, it's a conglomerate that is run by the Tisch family.  Of course, I think many people know Larry Tisch, especially those living in New York City.  He once owned and ran CBS.  Tisch is one of those value investors that really dug into things and took large stakes in what he liked.  There is a lot written about him including a pretty good book (here's a link: Book about Tisch).

Laurence Tisch passed away a few years ago but Loews is now run by three of his sons with James Tisch as CEO.  They have stuck to the strategy of investing in value situations and going in big when the opportunity presents itself.  One big homerun for them they still own is Diamond Offshore, which started out as an outfit that just bought oil rigs that nobody wanted at very, very low prices in the 1990s.  The industry was basically dead with crude oil prices low.   By the time crude oil prices soared, they had a bunch of rigs that suddenly became very valuable.  This is what they do; find stuff cheap that nobody wants, but that has potential to create great value.

Their 2010 annual report is a great summary of what they are.   $1 invested in Loews Corp stock on December 31, 1960 was worth $3,300 by the end of 2010.  $1 invested in the S&P 500 index at the same time would have grown to a not-so-bad $97.

Annualized, Loews Corp stock grew +17.6%/year over 50 years versus +9.6%/year for the S&P 500 index, an incredible outperformance over an incredibly long period of time.

The above chart was just cut and pasted from the annual report; it shows the value creation machine that Loews Corp is.

Of course, people will immediately say that a lot of outperformance seemed to have come in the early years; what about more recently? 

Here are the returns of Loews Corp common stock versus the S&P 500 index over recent time periods:

                                                             Loews Corp                        S&P 500 (incl dvd)
5 year annualized return                      +5.0%                                 +2.3%
10 year annualized return                    +9.4%                                 +1.4%
20 year annualized return                    +9.9%                                 +9.2%

So Loews Corp outperformed the index by +2.7% in the recent five year period through the end of 2010 and +8.0% for the ten year period.  The twenty year period outperformance is only +0.7%, however.  I wouldn't worry about that too much as some time period performance figures may be sensitive to time period beginnings and endings. Loews does seem to outperform pretty consistently over many time periods.

This is not bad at all in what has been a rough five years for Loews as they do own a large stake in CNA, which is an insurance company which had some balance sheet issues during the crisis.

Here are some interesting links:

Loews Corp overview
Presentation

I often get annoyed when I read a blog and am directed to this link and that link and all the links lead to long reports and things like that (unless they are things I am really, really interested).  So I try to avoid that, but the above links are really simple.  No reading at all; just simple diagrams that show the structure and value of Loews Corp.  Doesn't take more than a few minutes to skim through it.

Anyway, the above return figures are based on stock price, not book value per share or other fundamental metric.  Why is that?  I only used the stock price because that's what Loews Corp uses to show long term returns, and book value per share is not readily available over the long term.  Also, book value per share may not reflect the value of the businesses as Loew's main consolidated subsidiaries are listed on a stock exchange.  (In Berkshire Hathway' case, their stock investment portfolio is marked-to-market on the balance sheet every quarter. However, L's stockholdings are consolidated subsidiaries; this means the stock prices are *not* marked-to-market and instead the balance sheet and income statements are consolidated into L's financial statements)

In any case, stock price is fine to see long term returns in this case.

But then, of course, when you go and buy the stock, you have to understand what the stock price represents, or what the intrinsic value of the business is.

Before I update the value per share of Loews, let me just add that I have been following the Tisch family for years and they are very, very shareholder friendly.  In fact, since 1971, the number of shares outstanding has gone from 1.3 billion to 413 million shares.  As you know, share repurchases at good prices is capital 'returned' to shareholders.  If a shareholder does nothing, their stake in the business goes UP due to share repurchases.

And the Tisch family is very price sensitive.  They are very, very anti-fad and anti-trend.  You will never hear any of them spit out platitudes and the latest business fashionable lingo.  They don't do things because everyone else is doing it.  They don't do things to protect their jobs.  They are very single-minded in value creation and are very disciplined about it.

One thing, though, that I always scratch my head is that their CNA subsidiary, the insurance company, seems to always be going in and out of trouble.  One restructuring after another seems to happen.  They have owned this business since the 1970s, so I wonder what's going on there. 

But all this value has been created over the years despite that.

Anyway, let's take a quick look at what Loews is worth. 

Their listed subsidiaries are CNA, Diamond Offshore (DO) and Boardwalk Pipeline Partners (BWP) and this is what they own:

                    number of shares        price           value         
CNA            242.5 million              $22.56        $5.469 million
DO                 70.1 million              $54.02        $3,787 million
BWP            102.7 million               $24.81       $2,548 million

Loews currently has 404.9 million shares outstanding, so including BWP class B shares (not in the above list), the value per share comes to $30.55/share.

The current price of Loews is $34.43/share, so the value of the listed subsidiaries account for most of the value of the stock of Loews.

What else of value is there at Loews?  From the June 2011 presentation, which breaks out the value per share of assets that aren't listed subsidiaries, there is the following:
                        
                                                 Value per share
Net cash & investments           $9.08
Highmount                               $3.52

Highmount is a natural gas exploration and production company.  Net cash & investments include cash that can be used for future acquisitions, and they do have an investment porfolio of common stocks that is managed from a value standpoint.

Anyway, put these together and you have a value of $30.55 + $9.08 + $3.52 = $43.15 / share in value.  It is important to note that the above values exclude things like Loews Hotels, General Partnership interest in BWP and $100 million of subordinated debt of BWP.

So for a price of $34.43, you get asset value of $43.15/share, a 20% discount.  

Old time value investors will warn you, though, that L *always* trades at a discount to the sum-of-the-parts.

Taxes?
Some people use 20-30% discount for taxes on the listed subsidiary holdings.  I do that too, as you may have noticed for usual sum-of-the-parts analysis.  However, Loews management never accounts for taxes and the reason is simple.  I don't think the Tisch's would do a deal where they have to pay taxes!   They would structure any deal to be a tax-free spinoff or similar structure.

What do you own here?
So by owning L, what do you really own?  You own a collection of businesses at a 20% discount that may never close.  So what's the point?

First of all, let's take a quick look at the assets.  The largest piece at 40% of the market cap of L itself is CNA, an insurance company.  This trades, currently at 0.5x book value, which is pretty cheap.  Sure, all insurance companies are cheap and CNA has a history of problems.

But with the Tisch family owning 90% of it, you can be sure they do work very hard to fix it up.  They have said that they fixed the problems and CNA should do well going forward.  If the insurance market starts to pick up, there can be some nice upside in CNA shares. 

I haven't analyzed CNA closely myself, but during a conference call recently, James Tisch, the current CEO of L was asked where the upside in L may come from going forward.   Tisch said that CNA has a lot of potential as the stock price is trading very cheap and since they fixed a lot of the problems, an improvement in the industry fundamentals may provide a boost to returns there.

How about Diamond Offshore (DO) and Boardwalk Pipelines?  Diamond Offshore had a tough time recently after the BP explosion in the gulf and all drilling seemed to stop there.  DO had to move rigs to international markets outside the gulf.  Also, the recent weakening in the global economies is putting some downside pressure on crude prices.

But as I showed in my crude oil post recently, the further out contract months for crude oil still show a tight market going forward;  crude will get more expensive to find and drill.  Any cyclical slowdown due to economic weakness will probably prove temporary as global trends for higher per capita income and per capita usage of energy will continue to trend up over time.

L's natural gas businesses too, will likely benefit going forward as natural gas seems to make a lot of sense given environmental issues, high cost of crude oil and now doubts about the future of nuclear energy.

In that sense, L's positions in their natural gas businesses put L in a good place, it seems.

The Future of Loews
In any case, I don't know that you want to analyze all of L's holdings in detail to make a decision on whether you want to own it. 

I think the key here is in the managment of L; you have to trust that they will do the right thing for shareholders and that they will be very disciplined in their capital management.

By owning L stock, you don't just own the individual businesses.  You are benefiting from the decision-making by some of the best and honest minds in the business.  If they see problems in their businesses, they will be proactive in fixing it.  If they see an opportunity to sell or spin something off, they will do so.  If they see an interesting investment opportunity, they will take it. 

This is what you get when you own L and you can do much worse! 

(but, as usual, don't buy a stock you read about on some blog on the internet!  Do your own work.)

Crude Oil Prices

Crude oil prices have been tanking recently with the stock market and other commodities.  I just thought I'd mention an interesting thing about crude oil prices which might have some relevance for people looking at oil company stocks and oil price ETFs.

The November 2011 contract for WTI crude closed today at $77.12, quite a drop from the $90-100 level we've been getting used to recently.

However, if you price oil company stocks based on this price, it might be a little misleading. 

Stock prices should be evaluated based on longer term price levels, not on what the near-month futures contract is trading at.

What do I mean?

The December 2019 futures contract closed today at $88.69/barrel, or close to $90.  This is a more 'normal' estimate of what crude oil prices will be valued at over the longer term.  In that sense, the supply/demand imbalance that experts expect is still intact.

Near-month or front-month contract prices reflect more immediate needs (due to close expiration/maturity) and speculative interest (due to high liquidity). When there is a current shortage of a commodity, it trades in 'backwardation' (Front month trades higher than back month contracts).

This backwardation in the past is why commodity ETFs had such wonderful looking historical track records.  In backwardation, every time you sell the front month near expiration and buy the next month out, you earned a positive spread.  Keep doing that in a backward market and you make money even when the underlying commodity is flat.

Recently, however, crude has been in contango (front month cheaper than outer month), so every time the futures contracts are 'rolled' (front month sold and rolled into the next contract month) they end up selling something for less than what they have to buy next.  This causes a loss every time the contracts are rolled even in a flat underlying market.

Anyway, here is what the crude oil curve looks like:

Nov 2011 contract:  $77.21
Dec 2012:                $80.46
Dec 2013:                $82.69
Dec 2014:                $83.83
Dec 2015:                $84.99
Dec 2016:                $85.17
Dec 2017:                $86.48
Dec 2018:                $87.71
Dec 2019:                $88.69

For crude oil linked ETFs and other products, it's OK to use them for short term speculation, but if you are intending to own them over time, make sure you understand that in certain market situations, you can lose money even if crude oil prices don't move too much.

For evaluation crude oil companies too, understand that front-month oil volatitility may not necessarily reflect what oil prices are expected to be over time.  For that, sometimes further out contract months are a better indication.

6201: Toyota Industries

OK, this is one of the oldest stub trades ever and hasn't really been an exciting one.  Marty Whitman of the Third Avenue Value fund has owned it forever.  For those interested in actionable ideas right now, look at some of the financials.  You can skip this post.  Also, I'm sure many value investors have heard this idea many times over the years.  It is true there is no real 'catalyst' here to realize the value in the near or far future.  So those value investors can skip this too.  I don't think there is anything new here.

You may be interested, however, if you are interested in Japanese stocks and Toyota in particular.  If you're going to own Toyota, why not get it at a discount or in a package that is a bargain? 

I took a quick look at it recently so I just thought I'd jot down some notes; let's see if there's a good deal here.

The basic idea is that Toyota Industries owns a bunch of Toyota Motor Corp. and other stocks and the stock market often doesn't reflect the value of the holdings and the value of Toyota Industries' operating business.

Here are the basic facts:
Toyota Industries owns 215,640,000 shares of Toyota Motors Corporation and other stocks.

Value of stock holdings:
Toyota Motors Corp at 2568 yen/share:      567 billion yen
Other stockholdings:                                    325 billion yen
Bond investment trusts:                                 60 billion yen
Transferable deposits:                                    72 billion yen

Total value of portfolio:                            1,025 billion yen

Shares of Toyota Industries outstanding:    325.8 million shares

Total portfolio per share:                           3146 yen per share

Closing price of Toyota Industries:          2175 yen per share


So the total holdings exceeds the current share price of the stock.   This is not the whole story, though, as there is a tax liability to the above stock holdings.  Assuming a 40% tax rate and applied to the stock holdings, that would value the total portfolio at:

Total value of portfolio net of taxes:            668 billion yen

Total portfolio per share net of taxes:      2050 yen per share

So net of taxes, the market is valuing the operating business of Toyota Industries at 125 yen.

But what is the business worth?

The company expects to generate sales of 1.57 trillion yen for the full year ended March 2012 and operating earnings of 70 billion yen.  Net income includes interest and dividend income from the above investments, so we'll just start with the 70 billion yen operating income, deduct interest expense on the debt and then apply a 40% tax rate to see what the operating business net earnings will be:

70 billion yen minus interest expense of 16 billion yen (same as last year) = 54 billion yen in pretax income x (1 - 40% tax rate) = net income of 32.4 billion in net income.

With 326 million shares outstanding, the operating business eps would be: around 99 yen per share.

So Mr. Market is valuing Toyota Industries' operating business at 1.3x p/e.  Yes, that's not a typo.  1.3x p/e. 

If we think the business is worth 10x p/e, then the operating business is worth 1,000 yen per share, and adding the portfolio per share would give a fair value for Toyota Industries of around 3,000 yen per share versus the current 2175 yen per share price, 40% higher.

An important assumption here is that we assume that the debt Toyota Industries carries of 473 billion yen (including current portion of long term debt) will be able to be carried even without the investments on the balance sheet (which may or may not be true: Surely, the lenders are comforted by the large investment holdings).

With a 70 billion operating income and a 16 billion yen interest expense, this is not completely unreasonable.

But just to be sure, let's look at the same with an Enterprise Value (EV) / EBITDA ratio (EV includes debt).

The total market cap of Toyota Industries is currently 709 billion yen and total debt is 473 billion for a total enterprise value of 1.2 trillion yen.  Excluding the after-tax value of invesment holdings, currently around 670 billion yen, that would give us an adjusted EV of 530 billion yen.

EBITDA (this excludes interest and dividend income from investments) last year was 150 billion yen, so under this scenario the market values Toyota Industries at 3.5x EV/EBITDA.

Many value investors like to look at net cash, or net portfolio value after all debt is paid back. 

If we do the same with this one, then you would take the after tax value of the investment portfolio of  670 billion yen, deduct long term debt of 473 billion for net investments of 197 billion.   On a per share basis, this comes to around 600 yen per share.

Deduct this from the current share price of 2175, you get 1575 yen per share value for the operating business AFTER long term debt has been paid back.

So what would the operating business EPS be without interest expense (since debt is paid back)?  The company estimates operating earnings this year of 70 billion.  On an after tax basis, this becomes 70 billion x (1 - 40%) = 42 billion yen.  With 326 million shares outstanding, that comes to around 130 yen per share in EPS, leaving the operating business valued at 12x p/e.

With the current price relationships, Toyota Industries only looks really cheap when you assume the total debt can be carried by the operating business and the investment holdings can be spun off.  If not and the debt has to be paid off in a breakup scenario, then it doesn't look that particularly cheap. 

In any case, the possibility of a spin off or any sort of realization of value is very remote; activists have for years have tried to realize value in companies with very little success.

Does this work as a pair trade?
The other thing to think about is whether this would make a good long short trade.  Since the value of the investment holdings is so large relative to the market capitalization of the company, that's certainly something to think about.

I did a really quick check on the historical prices of Toyota Motor and Toyota Industries.  Assuming the shares outstanding of Toyota Industries haven't changed over the years, and the number of shares owned of Toyota Motor also hasn't changed, I looked at the percentage of market cap of Toyota Industries is made up of Toyota Motor stock holdings.

As of last night, that ratio was 0.79x; around 79% of the market capitalization of Toyota Industries is accounted for by the market value of Toyota Motor Corp stock it owns (on a pretax basis; this excludes deferred taxes).    This figure has averaged 0.9x since 1988.  It has been as low as 0.43x (in 1989) and high as 1.53 times (in 1999)).

That seems pretty wide and we seem to be right in mid-range.   Not so interesting as a pair trade at this point on a historical basis.

Without a clear endgame or catalyst, this trade is unlikely to work out as a long/short.

Is Toyota Motor Cheap?
Just as a footnote, I should mention that one factor in the appeal of this trade is the attractiveness of Toyota Motor stock.  Obviously, this is going to be a big driver in the value of Toyota Industries.

Toyota is interesting due to the bad news over the past few years and the bad news in general in Japan.  That's usually a good reason to take a look at something.

Anyway, I haven't taken a really close look at Toyota recently (auto industry seems increasingly crowded to me) but there was a nice table in Barron's last week with a few auto stocks and their valuations.  Judging from that, Toyota doesn't look particularly interesting at this point.

                                                 2012 estimated:
                                                 P/E                EV/EBITDA
Volkswagen (VLKAY):          5.2                 2.52
Volkswagen (VLKPY):           5.5                 3.32
BMW:                                      7.3                 2.25
Daimler:                                   5.6                 2.47
Honda:                                    12.9                8.21
Toyota:                                    18.1                8.13     <-- not so cheap?
GM:                                           4.6                2.16